Persons attempting to find a motive will be prosecuted; persons attempting to find a moral will be banished; persons attempting to find a plot will be shot.

Thursday, October 2, 2008

The Bailout Bill in Real World Terms

Your landlord upgrades the plumbing in your apartment building, but because he tried to cut corners, the walls are leaking and there's mold everywhere. In order to fix everything up, he sells the building to a holding company, which pays for the sale by charging all the tenants of the building an extra year's rent. Do the mold and the leaks go away? No. Do they ever get fixed? Nope. So who benefits? The landlord. Replace the word "landlord" with the name of your favorite investment bank and that's the bailout plan.

An investment banker is gambling in Vegas. He's betting that housing prices will always rise, and whenever they do, he makes a small fortune. But when they start falling, the value of the mortgages he's using to make more and more profit for himself begins to plummet. The failure of the mortgages and mortgage-derived debt he's carrying has totally exposed the massive difference between the cash in his wallet and the bet he has just put on the table. And the other players know it. They don't even call his bet; they take their chips and move to another table. Which means that he's totally screwed and he'll have to fold (pun intended) unless a friend of his steps in and says "I'll pay the difference between what you bet and what you have in your wallet." "Where will you get the money?" says the IBanker. "I'll bill the owners of those mortgages you bet," says the friend. Substitute the Treasury Department for the friend and that's what the government is saying with this bailout.

Your boyfriend is carrying five credit cards and making monthly minimum payments and planning to use his annual bonus to pay them all off. If he marks that bonus against his debt, they cancel each other out. But when he gets fired, the debt suddenly gets marked against his current salary, and he's fucked unless he can get somebody to buy it up for him. He calls up his friend Paulson and says, "What can you do for me?" Paulson says, "Don't worry about it." He calls up your boyfriend's credit card companies, hands them each a check for their total balance due, and then mails you the bill, with a note that says "If you don't pay this right now, our entire economy is at risk." That's what the government is doing with this bailout.